5 Simple Rules for New Penny Stock Traders

Penny stocks can be a great source of income. These stocks can help you make a lot of money in a short amount of time. But this can only happen if you are educated and equipped with skills and knowledge to navigate the penny stock marketplace.

The internet is a great place to find information on penny stocks whether it’s on Twitter, Google, your e-mail, a message board, etc. To not be duped in this world of trading it’s important to be able to make informed decisions and know what you are doing. The following rules may help you with your trading:

Rule #1 – Know as much about penny stocks as possible before you invest in them. The world of penny stocks can be very risky. This is a world that is full of misinformation. Most companies have been around a year or two and may not be around much longer after that. Always do research on any company you come across. Be cautious with long positions, penny stocks are sometimes best for trading. You can consult a professional if you don’t have the time to do due diligence on your own. If you are new to trading, write down all of your trades and log them to see where you make mistakes or how well you did.

Rule #2 – Never risk more money than you are willing to lose. It’s not out of the ordinary for some penny stocks to see gains of 100% or more in just one day, but most penny stocks don’t hold those kind of gains for too long. It’s important to get in and get out as fast as you can sometimes. If you see a profit, take it! Never wager more capital than you feel comfortable losing. Don’t bet with what you don’t have basically.

Rule #3 – Don’t be greedy. If you have a nice profit, take it and don’t wait for more. Sometimes penny stocks will go up very high and plummet extremely fast right after. Don’t aim for super high gains when you have 20 or 30% gains in front of you. If you consistently rake in these kinds of gains, you can build a very nice account. Use trailing stops whenever possible.

Rule #4 – Use Stop-Loss orders and Limit Orders. This can be the difference between losing your money or doubling it. Decide on prices you feel comfortable with and stick with them! A stop loss order can help minimize your losses and protect your profits. It’s typically set to about 10-20% lower than what your entry price was. Just like a limit order, you need to keep your emotions out of the equation and follow what your brain has decided.

Rule #5 – Don’t leap without looking first. Conduct as much research as possible! People sometimes fail to realize that you need to research before executing a trade. You have to be aware of what you are investing into. Look at financial reports, press releases, the company websites, stock charts, news, industry reports, and anything else that you can find. Using penny stock newsletters as a tool can always help you get sources of information on penny stock companies. Use your head and comb through all information possible before you put a dime into a penny stock.